Wednesday, December 12, 2012

The "CRA Did It" Question

Barry Ritholtz has always been a reasonably reliable left-oriented guy and he's paid a lot of attention to the "CRA" noise.

Here he tells us about new research into the question.

In brief:

1)  CRA lending did NOT cause more bank losses, nor did it have significantly more defaults/foreclosures.

2)  Mortgage losses (defaults/foreclosures) were generated by third-party brokers, not banks.

When CRA was passed, the Banks fretted--but you cannot find evidence that CRA was the cause of bank failures in the 1976-1985 timeframe, folks.  It ain't there.  You CAN find evidence that large-scale real-estate developments were the cause of many bank failures, particularly after the tax-reform acts of the mid-eighties.  But those were not loans to homeowners.

The problems leading to the '08 bust were almost exclusively generated by mortgage-broker firms (which, admittedly, were often subsidiaries of banks and S&L's.)


Jim said...

Really glad to see that people are starting to accept this reality that has been known and understood for years.

CRA required banks to make loans in areas that historically saw little if any credit offered. It did NOT require banks to reduce their credit or underwriting standards to make those loans. Any group of loans can be priced in a way that limits risk and creates profit.

Anonymous said...

You deserve to be raped in prison, Jim.